Is the cost curve in health delivery broken?
All the recent data appears to verify it. Whereas the per capita cost of healthcare spending grew nearly 50 percent from 2000 to 2006, it's been much lower than that the past couple of years, generally tracking to consumer inflation as a whole.
Hospital prices rose 1.7 percent from August 2013 to August 2014, according to Bureau of Labor Statistics data. White House economic data concludes that healthcare spending has grown at an annual rate of 1.3 percent since 2010. Recent data from the Census Bureau's health and social spending index had healthcare expenditures growing at a more robust rate between the second half of 2013 and 2014, but it still was only a 3.7 percent annual clip.
There is no consensus as to why healthcare spending growth is so timid as of late. The biggest reason, say many economists, is the lingering effects of the Great Recession. Millions of Americans lost their insurance, while millions who kept coverage were subject to cost-shifting, a practice that is generally continuing unabated. As a result, many of them put off seeking care, dampening demand and keeping a lid on prices.
But then there was the introduction of the Affordable Care Act (ACA). For years, the editorial pages of the Wall Street Journal and other anti-ACA media outlets declared that handing out all that free insurance was a tried and true formula for rising healthcare costs and insurance premiums.
But that didn't happen, either. The average premium rate increase in plans offered by the state exchanges for 2015 is 7 percent, according to PwC. Although that seems on the high side, increases in many states are actually coming in far lower. In Colorado, for example, the premiums are only rising 2.4 percent. In California, the most populous state in the nation, rates in the exchange won't budge at all, with some big insurers, such as Kaiser, actually cutting premiums.
Inflation tends to follow the laws of motion. If it's at rest, it tends to stay at rest. If it's in motion, it also tends to stay that way. Breaking the inflation of the 1970s and early 1980s required brutal measures by the Federal Reserve, triggering a recession only surpassed by the Great Recession in terms of postwar slowdowns. But 30 years later, an inflation rate higher than 2 to 3 percent a year is alarming.
Healthcare does not encompass the entire economy, so it did not require the ramping up of interest rates past 20 per year to tame its inflation. But there are still ways that it could be cut-- such as finding a way to deter spinal surgeons like Harrison T. Mu from making a $117,000 cameo appearances at a fusion procedure without the patient's knowledge. That's the kind of stuff that still makes U.S. healthcare by far the most expensive on earth, and could lead to some much needed deflation throughout the sector. - Ron (@FierceHealth)